90% of the Crypto Deleveraging is Already Done, Says Mike Novogratz

Galaxy Digital CEO Mike Novogratz shared his latest insight on the state of the crypto market in an interview with CNBC, predicting that it is close to the bottom after massive leveraged positions were liquidated. However, choppiness may persist in the short term until a bullish narrative reverses the overall sentiment.

“$13K BTC?”

When asked if Bitcoin could go lower, plunging to the $13k level, the former hedge fund manager said “no” to such a scenario. Due to the large-scale liquidation recently hitting Celsius, 3AC, BlockFi, and others with an “unbelievable amount of leverage,” he believes most of the deleveraging is “already out of the system.”

Despite new capital coming into the market buying out the failed companies, he added, the market could plummet further. Given such a circumstance, he predicted the market might go sideways as it waits for a clear signal for reversal.

“Can we go lower? Of course we could. It feels that we’re 90% through that deleveraging. The problem is for you to go much higher, you need the narrative to go much higher and you need new capital to come in.”

Transparency Issues

Commenting on crypto firms filing bankruptcies and freezing users’ funds amid market pullbacks, Novogratz criticized centralized entities taking custody of clients’ assets as seriously problematic because of their lack of transparency. Following such a disaster, he noted, regulatory authorities are expected to come after these failing companies.

“Look at Celsius for example, no one knew how much leverage they had. When all is said and done there will be accusations and prosecutions for fraud. There will be gross misconduct in some of these cases.”

In comparison, he praised decentralized lending platforms – Aave and Compound – for being transparent about financial information, thus leading to excellent performance even when extreme volatility took reign in the market. Novogratz called CeFi players “building on top of crypto” responsible for the violent market crash, as their behavior has contradicted what cryptocurrency was initially designed for.

On Gary Gensler

Novogratz also offered some thoughts on the SEC, once again rejecting Grayscale’s proposal of converting its futures-based ETF to a spot ETF.

He said the SEC boss – Gary Gensler – had disappointed the crypto community as people generally expected him to be a positive force at the beginning of his term. The billionaire attributed Gensler’s hawkish stance against crypto partly to the scale of the recent selloff, motivating him to remain cautious and even worried about the space.